BBC had an international poll in the year 2006 involving about 10000 people from 10 countries across the globe. The respondents were questioned on; who they believed would be the world’s top economies by 2026 or in the then 20 year term. A quarter of the participants answered that India would emerge as the third biggest economy by 2026 after China and US. I feel, the poll result is an explicit indication of comprehensive optimism, the world keeping on India’s anticipated but inexorable growth.
http://www.bbc.co.uk/pressoffice/bbcworld/worldstories/pressreleases/2006/05_may/emerging_giants.shtml
As India is rising as the world’s second fastest growing economy, the domestic equity market is also growing not only in the size of capital but in terms of the increasing number of participants. Whatever the short term reactions, I am sure, the inevitable growth is crystal-clear ahead in all respects and the next decade will witness the economical authority of this great nation. Simply, if you have a trust on our market/economy, cautious in selecting stocks to invest and having bit patience, the coming decade will surely flourish your funds.
Today, I wish to discuss on an emerging sector, realized as part of my research to find better sectors to invest for next 5-10 years. I am talking about the Broking sector or the listed equity broking firms in the segment. Its less important whether it is a defined sector in the name by conventional means or comes under any existing conservative sector heads. But, I am focusing the pure equity broking part. Yes, the stock brokers, via millions of investors buy and sell shares and pay the brokerage on day-to-day basis. The anticipated business potential of this sector already realized by our nationalized as well private sector banks and they are focusing the area as one of their imperative business segment. I hope this sector will do wonders for investors in long term as I am forced to consider the apparent growth of this business segment, more pragmatic as well undeniable with consistent reasons. I wish to list few rationales to affirm this point as it must be one of the assured sector, strong enough to bestow good returns to investors in the days to come.
120cr people! hardly 1.75cr equity investors, less than 1.5% of the total population. Try to compare, there was 4.2% of the total US population involved in the equity market in the year 1949. If we take the number of demat accounts as a measurement to count share market investors (direct or indirect), It seems the current figures are zilch, and the horizon is unlimited and appealing. Imagine, if 20% of our population participates in the equity platform in the next 5-10 years and just take this as numbers, its huge and will be near 25cr. I hope some 25-30% of our population may possibly participate in the equity market, directly or indirectly by end of next decade where the percentage stands now is just below 1.5.
The increasing trend in demat account figures showing real pace despite the markets witnessing high volatility during last couple of years. The numbers on both the depositories put together stood at 147.53 lakh as of May 2009 grown to 174.95 lakhs as per the latest data available. NSDL with total number of active accounts at 92.31 lakh as on May 2009 grown to 107.18 lakh while CDSL has grown to 67.78 lakh accounts from 55.22 lakh in the same period. On an average, about 2 lakh new demat accounts are added in the country every month and the trend is ascending. This striking statistics are impressive and the prospects for stock broking business are doubtlessly bright. The lengthy queues at Pan Card opening outlets are also surprising; our educated youngsters are interested in making money effortless or perceptive in the power of equities.
Lower penetration level to the retail investor segment in the equity market compared to developed countries offers a sizeable opportunity ahead to the brokers. Thousands of new investors opening demat accounts every day, recovery symptoms from the downturn and the positive market sentiments attracting lakhs of investors every month. Moreover, India has a positive demographic profile with a large segment of the population under 30. Increasing number of middleclass population, their increasing income level and higher savings rate offers key opportunity for brokers to channelising funds into the equity platform.
The anticipated divestment plans of Govt will probably ignite the flow of retail investors in the days to come. The robust regulatory environment administered by RBI as well the reliable controlling mechanism by Government bodies increases the trust and supports the Capital market to a comprehensive stretch. It seems the long term profitability of broking firms are intact assuming lack of hazardous negative surprises ahead in the domestic as well global economy. The fundamentals of our market/economy seems stronger and indicating further long term uptrend, despite all the possible concerns.
The short term/intra day trading, the fastest income source of brokers is easier than ever because of the dazzling development of communication/IT facet. Unlike earlier, you can enter or exit in a stock by very few clicks on your mouse button or pressing keys on your Cell Phone. You can easily transfer funds from your bank to the broker and vice-versa with in seconds. You can trade in stocks from any part of the globe irrespective of your location. The rapid spread of information technology, modern communication means and active participation of the media in the subject are played an exceptional role in creating the passion of equities to the common man. The automated screen-based trading system using modern technology makes market operations transparent as well error free.
There is hardly any specific season for the broking business or its an year full deal. If the market goes up, they do well, if it goes down, they do better. Simply, what ever you do, you have to pay them and there is no credit. And in our scene, the penetrable customer base is unlimited and it depends how the broker building up their business. Today, broking firms are growing their network at a rapid pace and even focusing in the rural areas. They are more in the way to expand their networks by franchisee route instead of company owned branches in order to keep the cost low. The flexible cost structure, appealing profit sharing ratios and lesser formalities to set up franchisee outlets encourages lots of young entrepreneurs to the zone.
Interesting links
Please refer PWC’s recent research revelations at following link.
http://timesofindia.indiatimes.com/world/china/China-can-overtake-US-economy-by-2020-says-PriceWaterhouseCoopers/articleshow/5482794.cms
Please have a look at following link where Google Trends showing search based statistics of terms. I have placed certain terms related to equity investment such as Share, Equity, share market, stock, stock broker, profit, brokerage etc.. The data is scaled based on the average search traffic of the term we have entered. You can see who people more interested in all these terms…
http://www.google.com/trends?q=share&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=equity&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=share+market&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=stock&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=stock+broker&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=profit&ctab=0&geo=all&date=all&sort=0
http://www.google.com/trends?q=brokerage&ctab=0&geo=all&date=all&sort=0
Buffet says “If a business does well, the stock eventually follows” . I hope this business can do well, eventually the stocks.
Few words to youngsters… If you are not yet started investing in equities, you will soon be... and its sure; every one of you will do that… if not now, later with the crowd.
Comment please...
Regards & happy investing
Shabu Thachat
